National Reports

The extraordinary growth of public spending in recent years is the main cause of high inflation and exchange rate volatility. Curiously the areas which are the main contributors to the fiscal overflow and need more reforms are not directly affected by the cabinet change. Without a revision of public spending decisions, which are currently made with an important share of demagogy, improvisation and little responsibility, it will not be possible to stop the loss of reserves and stimulate the economic growth.

Improvisation, opportunism and lack of professionalism in the management of important issues for the future of the country, as the drug policy, show the deep institutional degradation suffered by Argentina. The contrast with Chile is remarkable, where political dynamics have successfully placed the country on a path of sustained economic and social progress in democracy. The Chile’s strategies are not directly transferable to Argentina, but there is much to learn from this small neighboring country.

Througha norm thought to be used only in case of emergency –a decree of necessity and urgency–the government made ​​explicit that the public spending is growing out of control. The fiscal deficit is one of the main causes of inflation, which put pressure on the exchange rate. Even with some mitigating measures, such as the introduction of a multiple exchange rate system, the pending problem is still the high fiscal deficit. Since it´s no longer possible to increase the tax burden, the only solution is to reduce subsidies to public and private companies.

The initial permissiveness for a single economic group to achieve an exaggerated media concentration and the subsequent untimely interventions aimed at correcting this distortion, demonstrate the absence of a modern and effective state. The cost of this institutional degradation is enormous. For this reason, a broad political agreement among all political parties should be reached to rebuild the state with emphasis on sound designs of regulatory frameworks, independent control bodies and professional staff.

As it has been occurring for several years, the budget submitted to the Congress suffers from severe inconsistencies. Still, it contains valuable information. Very suggestive data is that the increase in pensions, government salaries and subsidies to unprofitable public and private companies are projected to grow below the inflation level. This is a strong evidence that, beyond political speeches, the dreaded “economic adjustment” is not a policy option but an inevitable path originated in the last decade’s wrong decisions and wasted resources.